SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1999
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number: 333-61533
PROFORMANCE RESEARCH ORGANIZATION, INC.
(Name of small business issuer in its charter)
DELAWARE 84-1334921
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5335 WEST 48TH AVENUE, DENVER, COLORADO 80212
(Address of principal executive offices including zip code)
Issuer's telephone number, including area code: (303)458-1000
Securities registered under Section 12(b) of the Exchange Act: NONE
Securities registered under Section 12(g) of the Exchange Act: NONE
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to the filing filing requirements for the past 90 days. Yes [ ] No [X]
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB.[X]
Issuer's revenues for its most recent fiscal year. $418,813
Aggregate market value of the voting stock held by non-affiliates
of the registrant as of December 31, 1999: N/A (See Item 5)
Number of shares outstanding of registrant's Common Stock, no par value,
as of April 20, 2000: 6,544,185 (See Item 11)
Documents incorporated by reference: NONE
Transitional Small Business Disclosure Format (check one): Yes [ ]No[X]
Exhibit index on consecutive page ____ Page 1 of ___ Pages
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
THE COMPANY
We (Proformance Research Organization, Inc., referred to sometimes as
"PRO" or the "Company") provide golf instruction through Destination Golf
Schools located at independent resorts, to which students generally travel for
intensive one to five-day programs. We target our sales to two audiences:
individuals through solicitation of direct retail sales and corporations through
the sales of "Premium Links(TM)" packages. The sale of Premium Links(TM)packages
is accomplished through a network of distributors located throughout the United
States. We are presently developing our distributor network and generate revenue
from the sale of territories to prospective distributors. As of April 15, 2000,
we had distributors in 32 of the 100 territories identified by management.
As of April 15, 2000, we had 26 Destination Golf Schools under contract
for full or partial year operation, seven of which are operating now. We
anticipate that all of our Destination Golf Schools will be open by fall 2000.
Our arrangement with independent resorts allows us to offer first-rate golf
facilities at reasonable cost and enables us to take advantage of the course's
or resort's marketing efforts, visibility, and facility quality.
We believe that we are distinguished from our competitors on the basis
of the quality of our facilities, our unique curriculum, and our experienced
management team and staff. Our curriculum is geared toward the marketing premise
that ideas accepted on the professional golf tours are accepted by recreational
golfers. Our teaching curriculum has been "recognized" by the Professional Golf
Association. This recognition allows us to provide PGA instruction by employing
PGA professionals who can work toward or maintain their status in the PGA
program. In the May 1999 issue of Golf Magazine, we were rated as one of the top
25 golf schools in America. The rating was based on the following criteria:
teaching curriculum, quality of facility, student-teacher ratio, faculty (i.e.,
PGA instructors), and the use of state of the art equipment, such as computer
and video equipment.
CORPORATE HISTORY
We were originally founded in Colorado in 1991 under the name World
Associates, Inc. and remained dormant until 1995. We formed a subsidiary in
Delaware in February 1996 originally called Team Family, Inc., which changed its
name to Proformance Research Organization, Inc. in January 1997. We merged into
this subsidiary effective July 31, 1998, thereby effecting a reincorporation,
changing us from a Colorado corporation to a Delaware corporation. We currently
do business under the name "Proform golf, inc.," and are in the process of
amending our certificate of incorporation to reflect this.
We acquired our first golf school, which established our curriculum, in
September 1996. We then negotiated and signed agreements with various golf
courses to operate our golf schools at such courses, beginning with an agreement
in March 1997. As outlined above, we now have 26 Destination Golf Schools under
contract. As our business matures, we continue to modify and update our teaching
curriculum.
INDUSTRY BACKGROUND
The National Golf Foundation, a non-profit golf research organization
(the "NGF"), conducts various surveys and studies of golfers in the United
States. According to excerpts from various studies by the NGF, there were
approximately 26.5 million golfers in the United States age 12 and over,
compared with 19.9 million golfers in 1986, an increase of 33%. Approximately 12
million of these golfers are between the age of 18 and 39, 5.0 million are
between age 40 and 49 and 6.5 million were over age 50. Approximately 5.6
million U.S. golfers are "avid" golfers, defined as those who play at least 25
rounds of golf per year. Today's typical golfer is male, 39 years old, has a
household income of $63,300 and plays 21 rounds per year. In 1996, golfers spent
about $15.1 billion on equipment, related merchandise and playing fees, compared
to $7.8 billion in 1986. Non-golfers spent an additional $1.25 billion on
golf-related items in 1996.
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STRATEGY
We believe that the three most important criteria used by golfers to
select a school are: (1) location, (2) price, and (3) product. Key elements of
our strategy are (1) to increase the number of our Destination Golf Schools in
the United States through the acquisition of other golf schools; (2) to increase
the number of distributors selling our services; (3) to be price competitive
through the sale of Premium Links(TM)packages; and (4) to expand our marketing
programs. We cannot assure you that we will be able to execute our strategy
successfully.
o INCREASE THE NUMBER OF OUR DESTINATION GOLF SCHOOLS. We believe that the
most important consideration for a golfer deciding which golf school to
attend is location. We believe that we can attract more students and sell
more Premium Links(TM)packages by offering more locations. We intend to
expand by acquiring existing golf school operations. In expanding to new
locations, we intend to add sites that are consistent with our current high
quality of facilities. We believe that our existing student booking and
billing operations can service a substantial increase in volume of
students, and that economies of scale can be achieved through the
acquisition of existing golf schools. As of April 15, 2000, we had 26
Destination Golf Schools under contract. We intend to locate our sites in
different geographic regions with varying golf seasons, which we believe
will reduce the effect of seasonality on our business. We have incurred
significant expenses for site development and personnel training which we
believe will assist us in implementing our expansion plans. We believe that
placing an emphasis on development and training, has enabled our staff to
become familiar with our systems, which will help us train new staff as we
acquire additional schools.
o INCREASE THE NUMBER OF DISTRIBUTORS SELLING OUR SERVICES. To facilitate the
sales of packages of golf instruction into the corporate market (called the
Premium Links(TM)program), we intend to establish a network of distributor
members in defined geographic locations. These distributors have
non-exclusive marketing rights to our Premium Links(TM)packages within
their respective territories. For the marketing rights to these programs, a
distributor pays a one-time fee of $35,000, which entitles the distributor
to an extensive training as well as the programs, products, and services
that we have created. We pay distributors commissions of up to 25% on the
sale of Premium Links(TM) packages based on a rolling commission schedule.
In order to develop our distributor network, we made a strategic decision
to open several sites for our Destination Golf Schools, despite the fact
that there are significant one-time and recurring expenses associated with
opening each site, and despite the fact that our existing sites were not
operating at capacity. We believe that adding additional sites makes our
Premium Links(TM)packages more valuable because it enables corporate
purchasers, such as TCI, 3Com, Oracle and Public Service of Colorado (all
of which have purchased Premium Links(TM)packages) to redeem lessons at
locations nationwide. As of April 15, 2000, we had 22 distributors in 32 of
the 100 territories identified by management. Certain distributors have
purchased more than one territory.
o BE PRICE COMPETITIVE THROUGH THE SALE OF PREMIUM LINKS(TM)PACKAGES.
Management believes that a significant market exists for the sale of golf
instruction to corporations, which can use them as incentives for sales and
employee performance. Our Premium Links(TM)packages are a prepaid system in
which the purchasing corporation receives a discount from the direct retail
price of a golf school. Corporations spend millions of dollars on
professional and collegiate sporting events, travel, and entertainment.
Premium Links(TM)was developed to capture a piece of that market and
combine the continually growing synergy of golf and business.
o EXPAND OUR MARKETING PROGRAMS. We believe that we must create and promote a
new, memorable brand identity through multiple marketing channels.
Initially, PRO limited its marketing program to traditional media, such as
television and direct marketing. Management believes that we must expand
our marketing programs to include other alternatives, including e-commerce
and corporate direct marketing. We believe we must build an identifiable
brand identity and provide education to our distributors about our
marketing programs.
Although we intend to expand our marketing programs, we will rely
significantly upon our distributors to market our products and services.
Utilizing distributors will allow us to defer our marketing costs, by
giving up a portion of the revenue generated from distributors's sales.
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DESTINATION GOLF SCHOOLS
Retail fees for Destination Golf Schools are paid in advance and range
from $275 for a 1-day school to $995 for a 4-day school. In addition to our
retail programs, we offer our Premium Links(TM)pre-paid packages. Premium
Links(TM) is an innovative package program that offers discounted daily rates at
package pricing. Premium Links(TM)packages are sold primarily through our
distributor network. Our Premium Links(TM) packages are primarily targeted at
corporate purchasers. The Premium Links(TM) packages can be given to employees
and/or clientele as incentives and can be redeemed at any Destination Golf
School nationwide. As of April 15, 2000, we offered three Premium
Links(TM)packages:
Par Package - 22 student days for $5,000;
Birdie Package - 46 student days for $10,000; and
Eagle Package - 123 student days for $25,000.
Our strategy is to operate our Destination Golf Schools at high-quality
existing resorts that have golf facilities. As of April 15, 2000, we had 26
Destination Golf Schools under contract for operation during all or portions of
the year. Following is a list of our sites and sites under development, along
with the date the site became available to students and the season the site is
open.
Our schools have been recognized by the PGA of America, which allows us
to employ, and in turn offer instruction by, PGA-accredited teachers. At our
Destination Golf Schools, our instructors teach a curriculum called the "Optimum
Impact System" that combines instruction in all areas of golf technique with
instruction in mental aspects of the game and physical conditioning to improve
play. Instructors assess the student's skill level and learning style,
developing a personal golfer profile for individualized instruction. At our
Destination Golf Schools, access to a golf course on site is included in each
1-, 2-, 3- or 4-day package.
<TABLE>
<CAPTION>
DATE
SITE NAME ADDRESS OPENED SEASON LEASE EXPIRES
- --------- ------- ------ ------ -------------
<S> <C> <C> <C> <C>
The Bog 3121 County Highway 1 April 2000 April - October October 2000
P.O. Box 79
Saukville, WI 53080
Caledonia Golf & Fish Club 369 Caledonia Drive March 1999 Year round April 2000(1)
Pawleys Island, SC 29585
Brooks Golf Club 1405 Highway 71 June 1998 Mid-May to September 2000
Lake Okoboji, IA mid-September
The Cascades 16325 Silver Oaks Drive February Year round February 2001
Sylmar, CA 91342 2000
Cinnabar Hills Golf Club 23600 McKean Road August Year round August 2000
San Jose, CA 95141 1999
Fred Arbanus Golf Club 11100 View High Drive January April - October December 2001
Kansas City, MO 64134 2000
Geneva National Golf Club Geneva National Ave. So. November April - October October 2000
Lake Geneva, WI 53147 1999
Hamlet Windwatch 1715 Vanderbuilt Motors Pkwy. April 2000 April - October September 2004
Hauppauge, NY 11788
Haymaker Golf Course 34856 U.S. Hwy. 40-E May 1999 April - October October 2000
Steamboat Springs, CO 80477
Indian Tree Golf Club 7555 Wadsworth Blvd. April 1998 April - October October 2000
Arvada, CO 80003
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<CAPTION>
DATE
SITE NAME ADDRESS OPENED SEASON LEASE EXPIRES
- --------- ------- ------ ------ -------------
<S> <C> <C> <C> <C>
Lake Spanaway Golf Club 15602 Pacific Avenue March 2000 April - October October 2000
Tacoma, WA 98444
Los Verdes 9200 East Iliff Avenue April 2000 April - October October 2000
Aurora, CO
The Mission Inn Golf & 10400 County Road 48 April 1998 November - April 2001
Tennis Resort Howie in the Hills, FL 54737 April
Paradise Point Golf Club 8212 Golf Course Road April 2000 April - October December 2001
Smithsfield, MO 64089
Persimmon Country Club 500 Southeast Butler Road April 2000 April - October April 2001
Gresham, OR 97080
Pole Creek Golf Club P.O. Box 3348 March 1999 April - October November 2000
Winter Park, CO
Prairie Landing 2325 Longest Drive March 2000 April - October October 2000
West Chicago, IL 60165
Quicksilver Golf Club 2000 Quicksilver Drive April 2000 April - October October 2000
Midway, PA 15060
Rhodes Ranch 9020 Rhodes Ranch Pkwy March 1998 November - March 2000(1)<F1>
Las Vegas, NV April
Seven Springs Mountain No. 1 April 2000 April - October October 2000
Resort Golf Course Champion, PA 91935
Steele Canyon Golf Club 3199 Stonefield Drive November Year round November 2000
Jamul, CA 91935 1999
Tapawingo National 13001 Gary Player Drive February April - October April 2001
Saint Louis, MS 2000
Thunder Hill Golf Club 7050 Griswold Road April 2000 April - October October 2000
Madison, OH 44057
Waverly Woods 2100 Harwick Way April 2000 April - October October 2000
Mariottsville, MD 21104
Wildfire Golf Course at 5225 East Pathfinder September November - October 2000
Desert Ridge Phoenix, AZ 1997 April
The Woods Resort P.O. Box 5 November April - October December 2001
Hedgesville, WV 25427 1999
<FN>
<F1>
(1) As of April 15, 2000, management was in the process of renegotiating
these contracts and we were operating on a month-to-month basis with
Rhodes Ranch and Caledonia Golf & Fish Club.
</FN>
</TABLE>
We contract with the owners of each facility to provide a golf school at
the existing golf facility and pay rent for the use of a portion of the
facility. Certain golf facilities prefer to outsource the golf school function
rather than be responsible for the overhead of establishing, maintaining and
marketing a golf school, and to date we have had success in negotiating site
agreements with 26 facilities. In addition, our operation of a golf school at an
existing facility provides the facility with higher visibility through our
advertising efforts and additional revenue through guest nights, rounds of golf,
meals, merchandise and other purchases by our golf school students. Due to this
mutually-beneficial arrangement, the rent charged us for using the facilities
has been relatively low, allowing us to maintain low operating
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costs while offering our students high-quality facilities. In addition, this
arrangement permits us to offer first rate golf facilities at relatively low
facilities cost and enables us to take advantage of the course's or resort's
marketing efforts, visibility and facility quality without incurring the
enormous capital requirements and advertising budgets needed to establish,
maintain and market such facilities. Initially, we entered into leases that
provided for fixed monthly rental. We have restructured all of our leases to
provide for rent based on the number of students attending our golf school at
the site, thereby reducing our fixed expenses. As we expand our network of
distributors throughout the United States, we will increase the number of sites,
basing our selection on proximity to the distributor territories and the ability
to provide for rent based on usage.
ACQUISITIONS AND SITE START-UP COSTS
Our management believes that there are many single-location golf school
and multiple-site golf school operations whose owners may see certain advantages
to being part of a larger organization with several locations. Management
believes that we can acquire such existing golf schools using a combination of
stock and as little cash as possible. Acquisitions of currently operating golf
schools will significantly increase our revenue base. We are currently in
various stages of discussions with approximately 22 companies that represent
over 50 sites; however, as of the date of this report, there are no
understandings, agreements, or arrangements for any acquisitions. If we are able
to secure the necessary financing, our plan is to expand to 200 Destination Golf
Schools over the next three years.
The expenses associated with acquiring golf schools and opening new
sites pertain to recruiting and training instructors and staff, rent, and
advertising. These start-up costs of establishing these new facilities are
incurred in advance of advertising the sites and booking students into the
sites. Having established an infrastructure for our Destination Golf School
operations, management believes that we can now achieve economies of scale in
certain of our operations, in particular advertising, student bookings, and
billing.
INTERNATIONAL OPERATIONS
On May 6, 1997, we signed a five-year agreement with Sunkyong U.S.A.,
under which Sunkyong U.S.A. agreed to represent us in the Republic of Korea
(South Korea) on an exclusive basis and to provide introductions to parties on a
non-exclusive basis throughout the Pacific Rim relating to product sales, and
Destination Golf School opportunities at sites in the Pacific Rim. Details with
respect to each site and fees to be paid to Sunkyong U.S.A. are to be negotiated
on a site-by- site basis. This agreement provides that Sunkyong U.S.A. has the
option of purchasing up to 10,000 shares of our common stock at a price of $5.00
per share for each Destination Golf School site, up to 32 sites in total. Sites
are subject to our approval. If all 32 sites are opened within the 5-year term
of this agreement, we may be obligated to issue 320,000 additional shares of
common stock.
However, due to the current business and financial conditions in Asia
generally and South Korea in particular, we have done no significant business to
date under this agreement, and expect to do no significant business under this
agreement until such time as Asian business and financial conditions improve.
MARKETING
We market our products and services primarily through distributors who
promote PRO with advertising campaigns in various media. To date, we have had a
limited marketing budget. A key component of our strategy is to use available
working capital to stimulate additional awareness and recognition of us and our
services and products. We will rely significantly upon our distributors to
market our products and services. Utilizing distributors will allow us to defer
our marketing costs, by giving up a portion of the revenue generated from
distributors' sales.
Our marketing department has conducted research on the circulation,
reader characteristics, and editorial content of various golf publications. Our
advertising and article placement strategy is intended to provide national
exposure, credibility and demand in the golf market. Our marketing strategy is
intended to be broad based, combining advertising in golf publications, such as
Golf Digest, with crossover advertising in other media intended to reach
targeted demographic and psychographic groups. These media include, but are not
limited to, high-end business and
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travel publications as well as electronic media, such as cable television
network programming (the Golf Channel) and the Internet (management is currently
negotiating an agreement with Liquidgolf.com regarding a cross- marketing/sales
program). Available capital would be used for larger ads running for consecutive
months to establish some degree of name recognition with our targeted audience.
In addition, we hope to take advantage of the marketing efforts of the operators
of our Destination Golf School sites, as well as any future strategic alliances
to expose us to a wider audience at no cost to us.
One target of our marketing efforts relating to our Destination Golf
Schools is executive training programs for the corporate market. We have created
incentive packages for corporations to reward performance, entertain clients or
as incentives for sales projects. As of April 15, 2000, we had conducted
hundreds of such programs, with an average attendance of 5 to 10 people. Our
marketing staff attempts to make direct contact with the corporate market
through advertising in trade journals and appearances at trade shows.
COMPETITION
The golf instruction market is highly fragmented, with lessons
available at a vast number of local golf courses, driving ranges and golf shops,
as well as a large number of destination golf schools. Our Destination Golf
Schools compete with all of these sources of golf instruction. Shaw Guides, an
Internet travel information source that compiles golf instruction facilities,
lists hundreds of different sources of golf instruction in the United States.
Many of the local sites with which our schools compete have greater local name
recognition and resources than us. Our Destination Golf Schools compete with
several destination golf schools operated throughout the United States,
including John Jacobs Golf Schools, David Leadbeateri Golf Academy,
Nicklaus/Flick Game Improvement, Arnold Palmer Golf Academy and Golf Digest
Schools. Many of the schools with which our Destination Golf Schools compete
have greater resources, a larger number of sites, more prestigious locations or
affiliations with well-known and respected golfers or golf instructors than we
do. For example, John Jacobs Golf Schools has 30 schools and Golf Digest Schools
offer instruction at 15 sites. While management believes that our program is
unique in its emphasis on the distributor network for sales to corporations and
growth through acquisitions, we cannot assure you that we will be able to
compete in the marketplace.
EMPLOYEES
As of December 31, 1999, we had 20 full-time and 3 part-time employees.
None of our employees is represented by a labor union. We believe that our
relationship with our employees is good.
ITEM 2. DESCRIPTION OF PROPERTY.
We lease approximately 7,800 square feet of space for administrative,
office, and marketing functions in Denver, Colorado, through November 30, 2002.
The Company believes that this property will be sufficient to meet our needs for
the duration of the lease.
ITEM 3. LEGAL PROCEEDINGS.
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Not Applicable.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
As of April 15, 2000, no public market exists for the Company's shares.
As of December 31, 1999, there were 235 record holders of the Company's
Common Stock, including shares held by the Company as treasury shares.
During the last two fiscal years, no cash dividends have been declared
on the Company's Common Stock.
Recent Sales of Unregistered Securities
During 1999, the Company has issued and sold the unregistered
securities as described below.
The Company issued 531,214 shares of Common Stock to 87 persons, all of
whom were accredited investors in consideration for loans having been made to
the Company. The shares were valued at $1.67 per share for a total of $887,127.
The Company issued 95,000 shares of Common Stock to 5 persons as an
inducement for the purchase of shares of Series C preferred stock.
The Company issued 38,000 shares of Common Stock to 18 persons in
consideration for entering into distributorship agreements. The shares were
valued at $2.50 per share for a total of $95,000.
The Company issued 178,040 shares of Common Stock to 12 persons for
services rendered. The shares were valued at $1.67 per share for a total of
$297,327.
The sale and issuance of securities in the transactions described above
were deemed to be exempt from registration under the Securities Act by virtue of
Section 4(2). Appropriate legends were affixed to the stock certificates issued
in the above transactions. Similar legends were imposed in connection with any
subsequent sales of any such securities. The securities were offered and sold by
the Company without any underwriters, except for the assistance of Global
Financial Group, Inc. All of the purchasers were deemed to be sophisticated with
respect to an investment in securities of the Company by virtue of their
financial condition and/or relationship to members of management of the Company.
For sales made with the assistance of Global Financial Group, Inc., Global was
paid a cash sales commission of 10% of the cash consideration received by the
Company and warrants to purchase Common Stock.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
OVERVIEW
Over the past two and a half years, we have expanded from five
Destination Golf Schools to 26 Destination Golf Schools in April 2000, which are
under contract for full or partial year operation. We had expected to be
financed in January of 1998 and the delay in financing created a cash-flow
problem due to the financial commitments that had been made to each of these
facilities.
Management believes that there are many single-location golf school and
multiple-site golf school operations whose owners may see certain advantages to
being part of a larger organization with several locations. Management believes
that we can acquire such existing golf schools using a combination of stock and
as little cash as possible. Acquisitions of currently operating golf schools
will significantly increase our revenue base. We are currently in various stages
of discussions with approximately 22 companies that represent over 50 sites;
however, as of the date of this report, there are no understandings, agreements,
or arrangements for any acquisitions. If we are able to secure the necessary
financing, our plan is to expand to 200 Destination Golf Schools over the next
three years.
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Originally, most site contracts for our Destination Golf Schools
provided for a fixed amount of monthly rent. As of April 15, 2000, all of our
site contracts to provide for rent on a per student basis, reducing our fixed
costs. In the future, we intend to negotiate only contracts which provide for
rent on a per student basis.
Our Destination Golf Schools have opened at varying times over the past
two and a half years, and most of the Destination Golf Schools are closed during
local off-seasons. As a result of changes in the number of facilities open from
period to period, closing certain of the Destination Golf Schools during local
off-seasons, and overall seasonality of the golf business, results of operations
for any particular period may not be indicative of the results of operations for
any other period.
In order to develop our distributor network, we made a strategic
decision to open several sites for our Destination Golf Schools, despite the
fact that there are significant one-time and recurring expenses associated with
opening each site, and despite the fact that our existing sites were not
operating at capacity. As of April 15, 2000, we had 22 distributors covering 32
of 100 territories. We believe that adding additional sites makes our Premium
Links(TM)packages more valuable because it enables corporate purchasers to
redeem the lessons at locations nationwide.
For each Destination Golf School, we hire a site manager and a number
of certified instructors based on anticipated demand. We provide training for
our site managers and certified instructors at our expense. We believe these
steps are necessary to establish the infrastructure to achieve our goal of
becoming the world's largest golf school.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
TOTAL REVENUe. We had total revenue of $418,813 for the year ended
December 31, 1999, compared to $189,740 of total revenue for the 1998 fiscal
year. The increase in total revenue was attributable primarily to the
development of our Corporate Sales, selling our Premium Links(TM)corporate golf
school packages, and the development of our distributor network During 1999, we
had contracted to operate at 18 Destination Golf Schools, as compared to five
Destination Golf Schools during 1998.
COST OF REVENUE. Cost of revenues for the year ended December 31, 1999
was $364,409 or 87% of total revenue, compared to $353,268 or 187% of total
revenue for the 1998 fiscal year. Cost of revenues consists primarily of
instructor salaries and site fees (calculated on a "per head" basis). The
decrease in cost of revenues was due primarily to increased revenues associated
with having more schools operating during the 1999 period and the decrease in
cost of the site fees. In addition, during 1998, the opening of several sites
was delayed, and revenue at open sites was negatively impacted by the effects of
an unusually wet winter in January, February and March 1998. See "Seasonality"
below.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses, consisting primarily of marketing and advertising
expenses, expenses associated with recruiting and training Destination Golf
School site managers and instructors, salaries for administrative, sales and
marketing staff, and rent at our headquarters, increased from $1,879,183 for
1998 to $3,544,407 for 1999. The increase was due primarily to expenses
associated with establishing our distributor network, such as increased
salaries, rent, and advertising expenses. We added more personnel, took on more
space, and generated sales materials and brochures. Also, shares issued as
inducements for loan funds received and shares issued as inducements for the
conversion of loans to stock are accounted for as a financing expense. The
amount charged to financing expense was approximately $1,005,751 for the year
ended December 31, 1999. During the 2000 fiscal year, management hopes to secure
financing for our operations which does not require us to issue share
inducements to our creditors; however, there are no assurances that we will be
able to obtain such financing.
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YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Total Revenue. We had total revenue of $119,072 for the year ended
December 31, 1997, compared to $189,740 of total revenue for the year ended
December 31, 1998. The increase in total revenue was attributable primarily to
the increase in the number of Destination Golf School sites operating in the
1998 period. During the first ten months of 1997, we had one Destination Golf
School - Keystone, Colorado - open for a total of four months. During the year
ended December 31, 1998, we had five sites open during portions of that year:
Wildfire (Phoenix); Carlton Oaks (San Diego area); Rhodes Ranch (Las Vegas);
Keystone; Brooks (Lake Okoboji); Huff House (Catskills).
COST OF REVENUE. Cost of revenues for the year ended December 31, 1997
was $95,545 or 80% of total revenue, compared to $353,268 or 186% of total
revenue for the year ended December 31, 1998. Cost of revenue consists primarily
of instructor salaries and site fees. The increase in cost of revenue as a
percentage of total revenue in 1998 was due primarily to hiring of instructors
for our new sites, which operated below capacity. Opening of several sites was
delayed, and revenue at open sites was negatively impacted, by the effects of an
unusually wet winter in January, February and March 1998. See "Seasonality"
below.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses, consisting primarily of marketing and advertising
expenses, expenses associated with recruiting and training our Destination Golf
School site managers and instructors, salaries for administrative, sales and
marketing staff, and rent at our headquarters, increased from $628,214 for the
year ended December 31, 1997 to $2,057,805 for the year ended December 31, 1998.
The increase was due primarily to expenses associated with recruiting and
training instructors for the new sites, expenses associated with opening the new
sites and rent at the new sites, and establishing our distributor network. We
believe that our long-term cost structure will be more advantageous with site
rentals based on fixed fees, and signed our new leases on this basis. However,
we are currently operating below capacity at all of our sites. We determined to
lower our short-term cost structure by negotiating a per-student rent for six
out of our ten summer sites. This decreases our fixed costs. (Our costs could
actually be higher at those sites than at sites with fixed rents if student
volume is increased at the sites with "per head" student rents.)
LIQUIDITY AND CAPITAL RESOURCES
The cash requirements of funding our operations and expansion have
exceeded cash flow from operations. At December 31, 1999, our working capital
deficiency was $3,206,485, based on current assets of $24,764 and current
liabilities of $3,231,249. To date, we have satisfied our capital needs
primarily through debt and equity financing.
At December 31, 1999, short-term notes payable and bonds was
$2,034,500. Of this amount, $1,239,500 will be paid by issuing 495,800 shares of
common stock.
We filed a registration statement for a public offering which was
declared effective in February 1999. Due to material changes during the term of
the offering, we did not complete that offering. Since we were in need of cash
for ongoing operations, we incurred additional short-term debt and sold Series C
preferred stock. We determined that it would be in our best interests not to
proceed with an initial public offering, but instead to register shares to be
issued to our creditors and holders of the Series C preferred stock.
Of the $442,612 in long-term debt outstanding at December 31, 1999,
$433,432 is payable to persons who are stockholders in the Company, and bears
interest at a fixed rate of 8%, is unsecured and is convertible (principal and
unpaid interest) into our common stock at a rate of $1.00 per share at anytime.
The notes are due on January 1, 2003; however, the holders of the notes may
require us to redeem the notes, in whole or in part, upon the first two
anniversary dates of the notes (January 1, 2001 and January 1, 2002), by giving
notice to us at least 90 days before the anniversary date. We are required to
register, under the Securities Exchange Act, the shares into which the notes may
be converted. The notes may be prepaid without penalty. If we default on the
note(s), the holder(s) are entitled one share of our common stock for every $100
per month for each month the note(s) are in default. The remainder of our long-
term debt
10
<PAGE>
relates to a note for an automobile which bears interest at the rate of 8.9% and
is payable in 42 monthly installments. As of December 31, 1999, there were 25
remaining installments.
Since we have already received cash proceeds from the issuance of our
stock, our existing operations must be able to generate enough cash to cover
existing commitments and obligations, such as lease rent for the facilities,
instructors' salaries, and officers' salaries. We are obligated under a
five-year employment agreement to pay William D. Leary, our president, an annual
salary of $120,000.
As described above, at December 31, 2000, we had a significant working
capital deficit. Therefore, our business plan is dependent upon our ability to
increase the number of our Destination Golf Schools and we will need to raise
additional capital to fund our operations and to take advantage of any expansion
opportunities. In that event, we cannot assure you that additional capital would
be available at all, at an acceptable cost, or on a basis that would be timely
to allow us to finance our operations or any expansion opportunities.
As stated in the auditors' report on the financial statements, we
incurred a net loss of $3,539,280 for the 1999 fiscal year, and at December 31,
1999, our current liabilities exceeded current assets by $3,206,485 and our
total liabilities exceeded total assets by $3,571,449. These factors, among
others, raise substantial doubt about our ability to continue as a going
concern. See the note entitled "Continuing Losses, Deficit in Equity and
Negative Working Capital" in the notes to the financial statements.
SEASONALITY
Throughout much of the United States, the golf business is seasonal,
operating primarily in the summer and additionally in the spring and fall.
However, in much of the Southern United States, golf is played either year-round
or all year except for the summer. This is primarily due to an outdoor playing
season limited by inclement weather or excessive heat. We believe that business
at our Destination Golf Schools will be seasonal with increased activity in the
winter as students take winter vacations to warm weather destinations, and
decreased activity in the summer. In particular, we expect decreased revenues
from Destination Golf School operations in May and September each year. We
anticipate the closing of our warm weather sites in May, with the staff of those
sites moving to a summer site, and anticipate closing our summer sites in
September, with the staff returning to their warm weather sites. In each case,
we expect a one week lag between the closing of one site and the opening of the
other site. For example, our site manager and certified instructors for Wildfire
will generally move to Pole Creek or Haymaker for the summer and the staff from
Rhodes Ranch in Las Vegas will move to Lake Okoboji, Iowa for the summer. Of our
26 current Destination Golf Schools, three facilities will close during the
summer, 19 will be open only during the summer, and the remaining four will be
open year-round.
Also, our operations are subject to the effects of inclement weather
from time to time even during the seasons that they are open. The timing of any
new facility openings, the seasons our facilities are open, the effects of
unusual weather patterns and the seasons in which students are inclined to
attend golf schools are expected to cause our future results of operations to
vary significantly from quarter to quarter.
Accordingly, period-to-period comparisons will not necessarily be
meaningful and should not be relied on as indicative of future results. In
addition, our business and results of operations could be materially and
adversely affected by future weather patterns that cause our sites to be closed,
either for an unusually large number of days or on particular days on which we
had booked a special event or a large number of students. Because most of the
students at our Destination Golf Schools attend the school on vacation, the
student may not be able to or interested in rescheduling attendance at one of
our sites. As a result, student-days lost to inclement weather may truly
represent a loss, rather than merely a deferral, of revenue.
IMPACT OF THE YEAR 2000
As of the date of this report, we have not experience any material year
2000 related problems. Management has assessed our operational procedures and
believes that we are prepared for any year 2000 problems which may result
11
<PAGE>
in the future. Accordingly, we expect that any year 2000 problems which may
occur in the future will have only a minimal adverse effect on our business,
operating results and financial condition, due to additional physical record
keeping efforts. However, we cannot assure you that year 2000 problems will not
occur. The year 2000 problem may affect other entities with which we transact
business or on which students of our golf schools depend, such as airlines and
hotels. While we are unable to send questionnaires to each and every airline and
hotel that our students may use, we have been tracking the ability of the
airline and hotel industries to book reservations for the year 2000. Published
reports indicate that these reservations are being made without problems.
Accordingly, while we cannot predict the effect of the year 2000 problem on
these other entities or its consequent impact on us, management believes that
any adverse effect on us will not be material. Thus far, there has been no
material impact on our business.
ITEM 7. FINANCIAL STATEMENTS.
Please refer to the pages beginning with F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
Not Applicable.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company, their positions
and ages are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITIONS
---- --- ---------
<S> <C> <C>
William D. Leary 40 President, Treasurer and Director
Robert B. Lange 72 Director
John C. Weiner 70 Director
</TABLE>
The Company's bylaws provide for a Board of Directors ranging from 1 to
9 members, with the exact number to be specified by the Board. The number is
currently fixed at 3 directors. All directors hold office until the annual
meeting of stockholders next following their election, and until their
successors have been elected and qualified. Officers serve at the discretion of
the Board of Directors.
There are no family relationships between any directors or executive
officers of the Company. Directors of the Company receive no compensation to
date for their service as directors. Set forth below are brief descriptions of
recent employment and business experience of the Company's officers and
directors.
WILLIAM D. LEARY. From January 1993 until the present time, Mr. Leary has
been the President of the Company. From May 1986 until January 1993, Mr. Leary
was the President and CEO of the Innova Corporation, a golf distribution
company. Mr. Leary was employed as a linebacker by the Denver Broncos of the
National Football League from May 1983 to December 1984. From January 1985
through May 1986, Mr. Leary was rehabilitating from an injury that ended his
football career and was employed as a golf teaching professional in the United
States, Japan, Austria and Switzerland. Mr. Leary graduated with a B.S. in
general education from Mesa College, Grand Junction, Colorado in May 1983.
12
<PAGE>
ROBERT B. LANGE. Mr. Lange has been a director of the Company since 1995.
From 1955 to 1972, Mr. Lange was employed as President and CEO of Lange Ski
Boot. Mr. Lange sold Lange Ski Boot in 1970, and since that time has been
working as an independent consultant. Mr. Lange graduated with a BA degree in
Economics from Harvard University in the spring of 1949 and earned his MBA from
SMU in 1951.
JOHN C. WEINER. Mr. Weiner has been a director of the Company since 1995.
Since 1982, Mr. Weiner has been Chairman of the Board of JCW Investments, Inc.
and JCW Ventures. From 1971 to 1982, Mr. Weiner was founder and President of
Trident Investment Management, Inc., a public and private pension and other
investment account management service. Mr. Weiner sold Trident Investment
Management to Pacific Inland Bancorp in 1982. From 1956 to 1969, Mr.Weiner was
employed by Moody’s Investors Service, serving as President and Chief
Executive Officer from 1966 until 1969. Mr. Weiner studied engineering at
Westminster College and Yale University from 1945 to 1946; received a B.A. in
pre-med and finance from Ripon College in 1948; received a B.S. in finance and
economics from the University of Chicago in 1950; and studied finance at
Northwestern University from 1950 to 1952.
KEY EMPLOYEES AND CONSULTANTS
In addition to the foregoing directors and officers, the following
individuals are key employees of or consultants to the company:
CHARLES "VIC" KLINE. Mr. Kline is a former director of the PGA. He is also
a five-time Colorado PGA section president and five-time player of the year. Mr.
Kline is a past Colorado Open and Rocky Mountain Open champion. Mr. Kline has
agreed to join our board of directors when our stock is listed on an exchange or
is traded in the over-the-counter market.
NEAL LAURIDSEN. As one of the founding principals and former Vice
President and head of marketing for the Nike Corporation, Mr. Lauridsen has
agreed to join our board of directors when our stock is listed on an exchange or
is traded in the over-the-counter market, bringing 25 years of successful,
worldwide marketing, corporate development, and expansion expertise.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
No directors, officers, or beneficial owners of more than ten percent
of securities of the Company reported to the Company any transactions involving
the securities during the fiscal year ended December 31, 1999. Accordingly,
there is no disclosure of any such transactions contained in this report.
ITEM 10. EXECUTIVE COMPENSATION.
The following table sets forth information for the Chief Executive
Officer ("CEO") of the Company, William D. Leary. No disclosure need be provided
for any executive officer, other than the CEO, whose total annual salary and
bonus for the last completed fiscal year did not exceed $100,000. Accordingly,
no other executive officers of the Company are included in the table.
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
------------------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
----------------------------------------------------------------------------------------------
SECURITIES
OTHER RESTRICTED UNDERLYING
NAME AND ANNUAL STOCK OP- ALL OTHER
PRINCIPAL COMPEN- AWARD(S) TIONS/SARS LTIP COMPEN-
POSITION YEAR SALARY($) BONUS($) SATION($) ($) ($) PAYOUTS ($) SATION ($)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
William D. 1999 43,365(1)<F1> -0- -0- -0- -0- -0- -0-
Leary, 1998 60,000 -0- -0- -0- -0- -0- -0-
President 1997 -0- -0- -0- -0- -0- -0- -0-
13
<PAGE>
<FN>
<F1>
(1) The Company and William D. Leary, an officer and director of the
Company, entered into an Employment Agreement dated July 1, 1998 (the
"Employment Agreement"). The Employment Agreement is for a five-year
term and provides for salary to Mr. Leary in the amount of $120,000
annually. As of December 31, 1999, there was an accrued wages expense
of $76,635.
</FN>
</TABLE>
The Company does not have any employment contracts with any of its officers
or directors, except for Mr. Leary. See "ITEM 12. CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS." Such persons are employed by the Company on an at will
basis, and the terms and conditions of employment are subject to change by the
Company. Mr. Leary, the Company's chief executive officer, was not granted any
stock options during the fiscal years ended December 31, 1999, 1998 or 1997. He
had no stock options at December 31, 1999.
The Company does not have any employment contracts with any of its
officers or directors, except for Mr. Leary. Such persons are employed by the
Company on an at will basis, and the terms and conditions of employment are
subject to change by the Company.
STOCK OPTION PLANS
The Company has no stock option plans.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding ownership
by each officer and director, and all officers and directors as a group, as well
as all persons who own greater than 5% of our outstanding shares, as of April
20, 2000, and as adjusted to reflect the issuance of the shares proposed to be
issued to these persons:
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OF SHARES
NAME OF BENEFICIAL OWNER (1)<F1> BENEFICIALLY OWNED BENEFICIALLY OWNED (2)<F2>
<S> <C> <C>
William D. Leary (3)<F3>...................... 2,614,891 39.5%
Leah Leary (4)<F4>............................ 1,268,056 19.4%
J Paul Consulting (5)<F5>..................... 600,000 9.2%
William Childs (6)<F6>........................ 560,000 8.6%
Robert B. Lange .............................. 194,000 3.0%
John C. Weiner (7)<F7>........................ 117,500 1.8%
All executive officers and directors as a
group (3 persons) (3)<F3>(4)<F4>(7)<F7>....... 2,926,391 43.9%
- ---------------
<FN>
<F1>
(1) To our knowledge, except as set forth in the footnotes to this table and
subject to applicable community property laws, each person named in the
table has sole voting and investment power with respect to the shares set
forth opposite such person's name. The address of each of the persons in
this table is as follows: c/o PROform golf, inc., 5335 West 48th Avenue,
Denver, Colorado 80212.
<F2>
(2) Where persons listed on this table have the right to obtain additional
shares of common stock through the exercise of outstanding options or
warrants or the conversion of convertible securities within 60 days from
April 20, 2000, these additional shares are deemed to be outstanding for
the purpose of computing the percentage of common stock owned by such
persons, but are not deemed to be outstanding for the purpose of computing
the percentage owned by any other person. Based on 6,544,185 shares of
common stock outstanding as of April 20, 2000.
14
<PAGE>
<F3>
(3) Includes 17,856 shares owned by Sean Leary and Keenan Leary, minor children
of William D. Leary and Leah Leary. Includes 1,250,200 shares owned by Leah
Leary, the wife of William D. Leary. William D. Leary has voting control
over the shares owned by Leah Leary pursuant to a Voting Trust Agreement.
Includes 76,635 shares issuable upon conversion of a note to Mr. Leary for
unpaid services.
<F4>
(4) Includes 17,856 shares owned by Sean Leary and Keenan Leary. Excludes
1,346,835 shares owned by William D. Leary and 76,635 shares issuable to
Mr. Leary upon conversion of a note to Mr. Leary for unpaid services.
William D. Leary has voting control over shares owned by Leah Leary
pursuant to a Voting Trust Agreement.
<F5>
(5) The address of J Paul Consulting is 6041 South Syracuse Way, Suite 307,
Englewood, CO 80111.
<F6>
(6) Includes 70,000 shares issuable upon conversion of a convertible debenture.
<F7>
(7) Before the issuance, Mr. Weiner owns 67,500 shares of common stock. He will
be issued 50,000 shares of common stock for debt conversion.
</FN>
</TABLE>
CHANGES OF CONTROL
The Company is not aware of any events which could result in a change
of control of the Company.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
WEINER SUBSCRIPTION AGREEMENT. On July 15, 1998, we entered into a
binding subscription agreement with Proformance Research Organization/Weiner,
Inc. and/or Vanguard 21st Century Weiner Inc., referred to as "PROW." John C.
Weiner is president and the sole shareholder of PROW and is one of our
directors. Under this subscription agreement, PROW had agreed, on or before the
final day of the offering commenced in February 1999, to subscribe for and
purchase at $5.00 per share all shares not otherwise subject to subscriptions
accepted by us. The offering did not close. PROW has loaned us $125,000, which
was converted into 50,000 shares of common stock.
LEARY EMPLOYMENT AGREEMENT. We entered into an employment agreement
with William D. Leary, one of our officers and directors, dated July 1, 1998.
The employment agreement is for a five-year term and provides for salary to Mr.
Leary in the amount of $120,000 annually. Under the employment agreement, Mr.
Leary is prohibited from competing against us for a period of one year from the
date of termination of Mr. Leary's employment. A state court may determine not
to enforce or only partially enforce this non-compete provision. As of December
31, 1999, we had accrued $76,635 for unpaid salary owed to Mr. Leary. See "Item
6. Management's Discussion and Analysis or Plan of Operation."
We believe that the terms of the above-described transactions were no
less favorable to us than would have been obtained from a nonaffiliated third
party for similar consideration. However, we lacked sufficient disinterested
independent directors to ratify all of the transactions at the time the
transactions were initiated. All ongoing and future transactions between us and
our officers, directors or 5% shareholders will be made or entered into on terms
that are no less favorable to us than those that can be obtained from
unaffiliated third parties, and all such transactions (including forgiveness of
any loans) will be approved by a majority of the independent members of our
board of directors who do not have an interest in the transactions and who have
access, at our expense, to our independent legal counsel. We have agreed with
certain state regulatory authorities that so long as our securities are
registered in such states, or one year from the date of the prospectus,
whichever is longer, we will not make loans to its officers, directors,
employees, or principal shareholders, except for loans made in the ordinary
course of business, such as travel advances, expense account advances,
relocation advances, or reasonable salary advances.
15
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
<TABLE>
<CAPTION>
REGULATION CONSECUTIVE
S-B NUMBER EXHIBIT PAGE NUMBER
<S> <C> <C>
3.1 Amended and Restated Certificate of Incorporation (1)<F1> N/A
3.2 Bylaws (1)<F1> N/A
4.1 Reference is made to Exhibits 3.1 and 3.2 (1)<F1> N/A
10.1 Distribution Agreement between the Company and Dave Bisbee, dated N/A
August 22, 1996 (1) <F1>
10.2 Distribution Agreement between the Company and William D. Leary (1)<F1> N/A
10.3 Lease between Fernal Inc. and William D. Leary and the Company, dated N/A
May 1, 1997, as amended by an Addendum to Lease between Mach One and
World Associates, Inc. dated April 4, 1998 (1)<F1>
10.4 Common Stock Purchase Agreement with Proformance Research N/A
Organization/Weiner, Inc. dated July 15, 1998 (1)<F1>
10.5 Sublease dated April 21, 1998 between Mach One Corporation and N/A
Proformance Research Organization, Inc. (1)<F1>
10.6 Employment Agreement between the Company and William D. Leary dated N/A
July 1, 1998 (1)<F1>
10.7 Consulting Services Agreement between Sunkyong U.S.A., Inc. and the N/A
Company dated May 6, 1997 (1)<F1>
10.8 Distribution Agreement between Renaissance Golf Products Inc. and the N/A
Company dated July 21, 1998 (1)<F1>
10.9 Amendment to Common Stock Purchase Agreement with Proformance N/A
Research Organization/Weiner, Inc. dated November 2, 1998 (1)<F1>
10.10 Form of Stock Escrow Agreement (1)<F1> N/A
27 Financial Data Schedule ____
- ----------------------------
<FN>
<F1>
(1) Incorporated by reference to the exhibits filed with the Registration Statement on Form SB-2, File No. 333-61533.
</FN>
</TABLE>
(b) The following reports on Form 8-K were filed during the last quarter of
the period covered by this report: NONE.
16
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
PROFORMANCE RESEARCH ORGANIZATION, INC.
Dated: April 27, 2000 By:/S/WILLIAM D. LEARY
----------------------------------------
William D. Leary, President
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
SIGNATURE TITLE DATE
President, Treasurer and Director
(Principal Executive, Financial and
/S/WILLIAM D. LEARY Accounting Officer) APRIL 27, 2000
- ---------------------------- --------------
William D. Leary
/S/ROBERT B. LANGE Director APRIL 27, 2000
- ---------------------------- --------------
Robert B. Lange
/S/JOHN C. WEINER Director APRIL 27, 2000
- ---------------------------- --------------
John C. Weiner
17
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors
Proformance Research Organization, Inc.
We have audited the accompanying balance sheet of Proformance Research
Organization, Inc. (fka World Associates Inc.) as of December 31, 1999, and the
related statements of operations, stockholders' deficiency, and cash flows for
each of the years ended December 31, 1999 and 1998. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Proformance Research
Organization, Inc. (fka World Associates Inc.) as of December 31, 1999, and the
results of its operations, and its cash flows for each of the years ended
December 31, 1999 and 1998, in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
company will continue as a going concern. As shown in the financial statements,
the company incurred a net loss of $3,539,280 for 1999 and has incurred
substantial net losses for each of the past five years. At December 31, 1999,
current liabilities exceed current assets by $3,206,485 and total liabilities
exceed total assets by $3,571,449. These factors, and the others discussed in
Note 13, raise substantial doubt about the company's ability to continue as a
going concern. The financial statements do not include any adjustments relating
to the recoverability and classification of recorded assets, or the amounts and
classification of liabilities that might be necessary in the event the company
cannot continue in existence.
/S/STARK TINTER & ASSOCIATES, LLC
Stark Tinter & Associates, LLC
Denver, Colorado
March 31, 2000
F-1
<PAGE>
Proformance Research Organization, Inc.
(fka World Associates Inc.)
Balance Sheet
December 31, 1999
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current assets
Due from employees $ 2,264
Note receivable 6,000
Prepaid expenses 16,500
----------
Total current assets 24,764
Property and equipment - net of accumulated depreciation 66,285
Other assets 11,363
----------
$ 102,412
==========
LIABILITIES AND STOCKHOLDERS' (DEFICIENCY)
Current liabilities
Bank overdraft $ 2,808
Accounts payable and accrued expenses 571,126
Accrued interest 177,285
Current portion of long term debt 7,733
Related party payable 25,839
Notes and bonds payable 85,000
Notes and bonds payable, related party 1,949,500
Deferred revenue and deposits payable 411,958
----------
Total current liabilities 3,231,249
----------
Long term debt
Notes and bonds payable 9,180
Notes payable, related party 76,635
Bonds payable, related party 356,797
----------
442,612
----------
Stockholders' (deficiency)
Preferred stock, Series C, convertible, cumulative,
no stated value, 2,000,000 shares authorized,
190,000 shares issued and outstanding- 475,000
Common stock, no par value, 10,000,000 shares authorized,
4,999,114 shares issued and outstanding 2,996,731
Accumulated deficit (7,043,180)
-----------
Total stockholders' (deficiency) (3,571,449)
-----------
$ 102,412
===========
</TABLE>
See accompanying notes to financial statements
F-2
<PAGE>
Proformance Research Organization, Inc.
(fka World Associates Inc.)
Statements of Operations
For the years ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Revenue $ 418,813 $ 189,740
Cost of revenues 364,409 353,268
------------ ------------
Gross profit (loss) 54,404 (163,528)
------------ ------------
Operating expenses
Sales, general and administrative 3,544,407 1,879,183
Depreciation 14,858 8,810
------------ ------------
Total operating expenses 3,559,265 1,887,993
------------ ------------
Operating (loss) (3,504,861) (2,051,521)
Interest expense 114,742 78,694
------------ ------------
(Loss) from continuing operations (3,619,603) (2,130,215)
Provision for income taxes (benefit) (16,065) -
------------ ------------
Discontinued operations
(Loss) from operations of Team Family
segment - (3,063)
------------ ------------
Extraordinary Items
Gain on early extinguishment of debt,
net of income taxes of $16,065 64,258 -
------------ ------------
Net (Loss) $(3,539,280) $(2,133,278)
============ ============
Per share information-basic and fully diluted
Weighted average shares outstanding 4,351,131 939,287
============ ============
(Loss) per common share
(Loss) from continuing operations $ (0.83) $ (2.27)
(Loss) from discontinued operations - -
(Gain) from extraordinary items 0.02 -
------------ ------------
Net (loss) per common share $ (0.81) $ (2.27)
============ ============
See accompanying notes to financial statements
</TABLE>
F-3
<PAGE>
<TABLE>
Proformance Research Organization, Inc.
(fka World Associates Inc.)
Statement of Stockholders' (Deficiency)
For the years ended December 31, 1998 and 1999
<CAPTION>
Preferred Stock Preferred Stock Preferred Stock
Common Stock Series A Series B Series C
-------------------- ---------------------- -------------------- ---------------- Accumulated
Shares Amount Shares Amount Shares Amount Shares Amount Deficit Total
--------- ---------- --------- ------------ --------- ---------- ------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1998 897,534 $82,095 116,900 $ 584,500 185,200 $ 212,800 - $ - $(1,370,622) $( 491,227)
Issuance of stock
for cash at $5.00
per share 96,300 481,500 481,500
Stock issued in
consideration for
loans received at
$4.00 per share 12,500 50,000 50,000
Conversion of shares
upon the Company's
merge into its
wholly owned
subsidiary 1,638,061 533,000 463,000 -
Issuance of stock
for cash at $1.43
per share 41,650 59,500 59,500
Debt converted to
stock at $1.43 per
share 70,000 100,000 100,000
Stock issued in
consideration for
loans received at
$1.43 per share 100,213 143,304 143,304
Stock issued in
consideration for
services rendered
at $1.43 per share 2,502 3,578 3,578
Net (loss) for 1998 (2,133,278) (2,133,278)
--------- ---------- --------- ------------ --------- ---------- ------- -------- ------------ ------------
Balance at
December 31, 1998 2,650,810 278,977 857,850 1,225,500 648,200 212,800 - - (3,503,900) (1,786,623)
Issuance of stock
for cash at $2.50
per share 190,000 475,000 475,000
Conversion of Series
A to common shares 857,850 1,225,500 (857,850) (1,225,500) -
Conversion of Series
B to common shares 648,200 212,800 (648,200) (212,800) -
Stock issued in
consideration for
loans received at
$1.67 per share 531,214 887,127 887,127
Stock issued in
consideration for
Series C stock
purchased 95,000 - -
Stock issued in
consideration for
distributorship
agreements at $2.50
per share 38,000 95,000 95,000
Stock issued in
consideration for
services rendered at
$1.67 per share 178,040 297,327 297,327
Net (loss) for 1999 (3,539,280) (3,539,280)
--------- ---------- --------- ------------ --------- ---------- ------- -------- ------------ ------------
Balance at
December 31, 1999 4,999,114 $2,996,731 - $ - - $ - 190,000 $475,000 $(7,043,180) $(3,571,449)
========= ========== ========= ========= ============ ========== ======= ======== ============ ============
See Accompanying Notes to Financial Statements
F-4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Proformance Research Organization, Inc.
(fka World Associates Inc.)
Statements of Cash Flows
For the years ended December 31, 1999 and 1998
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) $(3,539,280) $(2,133,278)
Adjustments to reconcile net (loss)
to net cash (used in) operating
activities:
Depreciation and amortization 14,858 8,810
Common stock issued for inducements - 96,653
Write off of deferred financing costs 96,653 -
Changes in assets and liabilities:
(Increase) decrease in due from employees 3,945 (6,209)
(Increase) decrease in note receivable 12,000 (18,000)
(Increase) decrease in deferred offering
costs 34,626 (34,626)
Decrease in prepaid expenses (16,500) -
(Increase) decrease in other assets (6,700) 504
Increase in accounts payable and accrued
expenses 641,971 340,761
Increase in accrued interest 50,433 -
Increase in related party payable 7,315 18,524
Increase in deferred revenue and deposits
payable 166,517 234,330
(Decrease) in liabilities of discontinued
operations (41,102) (14,038)
------------ ------------
Total adjustments 964,016 626,709
------------ ------------
Net cash (used in) operating activities (2,575,264) (1,506,569)
------------ ------------
Cash flows from investing activities:
Purchase of property and equipment (12,661) (59,411)
------------ ------------
Net cash (used in) investing activities (12,661) (59,411)
------------ ------------
Cash flows from financing activities:
Increase in bank overdraft 2,808 -
Proceeds from notes and bonds payable 697,127 299,166
Proceeds from notes and bonds payable,
related party 1,782,797 1,035,500
Payment on notes and bonds payable, related
party (365,000) (407,000)
Net proceeds from issuance of preferred
stock series A - 641,000
Net proceeds from issuance of preferred
stock series C 475,000 -
Payments on note and bonds payable (9,577) (2,677)
------------ ------------
Net cash provided by financing activities 2,583,155 1,565,989
------------ ------------
Net increase (decrease) in cash (4,770) 9
Beginning - cash 4,770 4,761
------------ ------------
Ending - cash $ - $ 4,770
============ ============
Supplemental cash flow information:
Non-cash transactions:
Common stock issued in consideration for
loans $ 887,127 $ 193,305
Common stock issued in consideration for
distributorship agreements $ 95,000 $ -
Common stock issued in consideration for
services rendered $ 297,327 $ 3,578
Cash paid for:
Interest $ 4,548 $ 1,043
Income taxes $ - $ -
</TABLE>
See Accompanying notes to financial statements
F-5
<PAGE>
Proformance Research Organization, Inc.
(fka World Associates Inc.)
Notes to Financial Statements
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
The Company was incorporated in 1993 in Colorado under the name of World
Associates, Inc. On July 31, 1998, the Company merged into Proformance Research
Organization, Inc. ("PRO"), a Delaware corporation, with PRO surviving (see Note
3).
The Company conducts destination golf schools by contracting with existing
facilities to provide instruction. The Company also earns annual license fees
from distributors in exchange for certain non-exclusive rights.
Revenue recognition
Revenues are recognized in the period when the student attends the golf
school. Revenues collected in advance of attendance are deferred. Revenue from
license fees collected pursuant to distributor agreements is deferred until the
Company fulfills all requirements of the agreement.
Depreciation
The cost of equipment is depreciated over the estimated useful lives (5
years) of the related assets. Depreciation is computed on the straight-line
method for financial reporting purposes.
Use of estimates
The preparation of the Company's financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions the affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the balance sheet date and
the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
Net loss per share
The Company follows Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" ("SFAS No. 128"). Basic earnings per common share ("EPS")
calculations are determined by dividing net loss by the weighted average number
of shares of common stock outstanding during the year. Diluted earnings per
common share calculations are determined by dividing net income by the weighted
average number of common shares and dilutive common share equivalents
outstanding.
Cash and Cash Equivalents
For purposes of balance sheet classification and the statements of cash
flows, the Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
F-6
<PAGE>
Proformance Research Organization, Inc.
(fka World Associates Inc.)
Notes to Financial Statements
Stock-Based Compensation
The Company accounts for stock based compensation in accordance with SFAS
No. 123, "Accounting for Stock-Based Compensation." The provisions of SFAS No.
123 allow companies to either expense the estimated fair value of stock options
or to continue to follow the intrinsic value method set forth in APB Opinion 25,
"Accounting for Stock Issued to Employees" ("APB 25") but disclose the pro forma
effects on net income (loss) had the fair value of the options been expensed.
The Company has elected to continue to apply APB 25 in accounting for its stock
option incentive plans.
Comprehensive Income
There were no items of comprehensive income for the years ended December
31, 1999 and 1998, and thus net loss is equal to comprehensive loss for those
years.
Advertising Costs
Advertising is expensed as incurred. Advertising costs expensed during
years ended December 31, 1999 and 1998 were $130,009 and $129,644, respectively.
Product Concentration
The Company currently derives most of its revenues from destination golf
schools. The Company expects that these revenues will continue to account for
substantially all of the Company's revenues for the foreseeable future. As a
result, the Company's future operating results are dependent upon continued
market acceptance of destination golf schools and enhancements thereto. There
can be no assurance that these golf schools will achieve continued market
acceptance. A decline in demand for, or market acceptance of, destination golf
schools as a result of competition, technological change or other factors could
have a material adverse effect on the Company's business, operating results and
financial condition.
Impairment Of Long-Lived Assets
The Company periodically reviews the carrying amount of property, plant and
equipment and its identifiable intangible assets to determine whether current
events or circumstances warrant adjustments to such carrying amounts. If an
impairment adjustment is deemed necessary, such loss is measured by the amount
that the carrying value of such assets exceeds their fair value. Considerable
management judgement is necessary to estimate the fair value of assets,
accordingly, actual results could vary significantly from such estimates. Assets
to be disposed of are carried at the lower of their financial statement carrying
amount or fair value less costs to sell. As of December 31, 1999, management
does not believe there is any impairment of the carrying amounts of assets.
F-7
<PAGE>
Proformance Research Organization, Inc.
(fka World Associates Inc.)
Notes to Financial Statements
Fair Value of Financial Instruments
Fair value estimates discussed herein are based upon certain market assumptions
and pertinent information available to management as of December 31, 1999. The
respective carrying value of certain on-balance-sheet financial instruments
approximate their fair values.
These financial instruments include cash, notes receivable, amounts due from and
payable to related parties, accounts payable, accrued expenses and notes and
bonds payable. Fair values of the short-term financial instruments were assumed
to approximate carrying values for these financial instruments because they are
short term in nature and are due or payable on demand. The fair value of the
Company's long-term notes and bonds payable approximate its carrying value based
on the current rates offered to the Company for debt of the same remaining
maturities.
Recent Pronouncements
The FASB recently issued Statement No 137, "Accounting for Derivative
Instruments and Hedging Activities-Deferral of Effective Date of FASB Statement
No. 133". The Statement defers for one year the effective date of FASB Statement
No. 133, "Accounting for Derivative Instruments and Hedging Activities". The
rule now will apply to all fiscal quarters of all fiscal years beginning after
June 15, 2000. In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which is required to be adopted
in years beginning after June 15, 1999. The Statement permits early adoption as
of the beginning of any fiscal quarter after its issuance. The Statement will
require the Company to recognize all derivatives on the balance sheet at fair
value. Derivatives that are not hedges must be adjusted to fair value through
income. If the derivative is a hedge, depending on the nature of the hedge,
changes in the fair value of derivatives will either be offset against the
change in fair value of the hedged assets, liabilities, or firm commitments
through earnings or recognized in other comprehensive income until the hedged
item is recognized in earnings. The ineffective portion of a derivative's change
in fair value will be immediately recognized in earnings. The Company has not
yet determined if it will early adopt and what the effect of SFAS No. 133 will
be on the earnings and financial position of the Company.
NOTE 2. PROPERTY AND EQUIPMENT
The following is a summary of property and equipment at cost, less accumulated
depreciation at December 31, 1999:
<TABLE>
<S> <C>
Furniture and fixtures $32,201
Leasehold improvements 8,252
Equipment 29,403
Vehicle 32,313
-------
102,169
Less: Accumulated depreciation 35,884
-------
Total $66,285
=======
</TABLE>
F-8
<PAGE>
Proformance Research Organization, Inc.
(fka World Associates Inc.)
Notes to Financial Statements
For the years ended December 31, 1999 and 1998, depreciation expense charged to
operations was $14,858 and $8,810, respectively.
NOTE 3. MERGER
On July 31, 1998, the Company merged into PRO, its subsidiary, with PRO
surviving. On that date, each issued and outstanding share of the Subsidiary's
Series A Convertible Preferred Stock was converted into 3.5 shares of Series A
stock of PRO. Also, each issued and outstanding share of the Subsidiary's Series
B Convertible Preferred Stock was converted into 3.5 shares of Series B of PRO.
Each share of the Subsidiary's issued and outstanding Common Stock was converted
into 2.8 shares common stock of PRO. The currently issued and outstanding shares
of PRO held by the Subsidiary were cancelled on the effective date of the
merger.
NOTE 4. LEASE OBLIGATION
The Company leases office space under an operating lease arrangement for $6,500
per month. The lease expires on October 31, 2003.
Minimum future lease payments on the office lease are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
------ --------
<S> <C>
2000 $ 78,000
2001 78,000
2002 78,000
2003 65,000
--------
Totals $299,000
========
</TABLE>
For the years ended December 31, 1999 and 1998, the amounts charged to
operations for rent expense were $67,815 and $54,086, respectively.
NOTE 5. RELATED PARTY TRANSACTIONS
The Company entered into an employment agreement for the position of President
and Chief Executive Officer on July 1, 1998. The agreement has a five-year term
which expires on June 30, 2003. The base compensation is a minimum of $120,000
per year. In addition to the base compensation incentive compensation will be
determined by the Compensation Committee of the Board of Directors and begins on
January 1, 1999. During the term of employment and in the event of termination
of employment the employee cannot directly or indirectly own or manage a similar
business within a four hundred-mile radius. As of December 31, 1999 $76,635 of
salaries are due to this officer.
F-9
<PAGE>
Proformance Research Organization, Inc.
(fka World Associates Inc.)
Notes to Financial Statements
NOTE 6. NOTES AND BONDS PAYABLE
The following are summaries of notes and bonds payable at December 31, 1999:
SHORT-TERM:
8% promissory notes payable, principal and
interest due July 4, 1999 and July 15, 1999,
(in default) warrant inducements (see Note 8),
unsecured $ 60,000
10% promissory note payable, principal and
interest due July 4, 1999 (in default), unsecured 10,000
12% convertible bonds payable, interest
payable semi-annually, convertible at any time
into Series A Convertible Preferred Stock at
rate of $5 per share, annually redeemable on
the anniversary date of issuance at the holders
option, (in default) unsecured 5,000
12% convertible bonds, interest payable semi-
annually (in default), convertible at any time
into Series A Convertible Preferred Stock at
rate of $5 per share, annually redeemable on
the anniversary date of issuance at the holders
option, unsecured 10,000
--------
$ 85,000
========
F-10
<PAGE>
Proformance Research Organization, Inc.
(fka World Associates Inc.)
Notes to Financial Statements
SHORT-TERM, RELATED PARTY:
12% convertible bonds payable to
stockholders, interest payable semi-annually,
convertible at any time into Series A
Convertible Preferred Stock at rate of $5 per
share, annually redeemable on the anniversary
date of issuance at the holders option, (in
default) unsecured $ 25,000
8% promissory notes payable to stockholders,
principal and interest due within five business
days of first available proceeds from the
Company's public offering, common stock and
warrant inducements (see Notes 7 and 8),
unsecured 535,000
8% convertible notes payable to stockholders,
convertible within in five days of the
Company's public offering, into Common Stock
at rate of $2.50 per share, common stock and
warrant inducements (see Notes 7 and 8),
unsecured 1,239,500
10% promissory notes payable to
stockholders, principal and interest due within
five business days of first available proceeds
from the Company's public offering, stock
inducements (see Note 7), unsecured 25,000
12% convertible bonds payable to
stockholders, interest payable semi-annually
(in default), convertible at any time into Series
A Convertible Preferred Stock at rate of $5 per
share, annually redeemable on the anniversary
date of issuance at the holders option,
unsecured 125,000
----------
$1,949,500
==========
F-11
<PAGE>
Proformance Research Organization, Inc.
(fka World Associates Inc.)
Notes to Financial Statements
LONG-TERM:
8.90% note payable, principal and interest
of $744 due in 42 monthly installments beginning
August 1998, collateralized by vehicle $16,913
-------
Less current portion 7,733
-------
$ 9,180
=======
LONG-TERM, RELATED PARTY:
8% convertible notes payable to stockholders
due January 1, 2003, convertible at any time
subsequent to the Company's public offering,
into Common Stock at rate of $1.00 per share,
(see Note 7), unsecured $76,635
=======
LONG-TERM, RELATED PARTY:
8% convertible bonds payable to stockholders
due January 3, 2003, convertible at any time
subsequent to the Company's public offering,
into Common Stock at rate of $1.00 per share,
common stock and warrant inducements
(see Notes 7 and 8), unsecured $356,797
========
NOTE 7. STOCKHOLDERS' EQUITY
Classes of preferred stock
The Company's Series A and Series B have no voting rights and pay cumulative
dividends at the rate of 0.000492% per share of the Company's pre-tax profits
until such time as the holder shall have received $5 per share. Thereafter, the
dividend rate is 0.00005% per share of the Company's pre-tax profits. The
dividend on the Series B stock shall be junior in preference to the dividend
payable on the Series A stock and no dividends shall be paid on the Series B
stock until the dividend payable on the Series A stock shall have been declared
and paid or a sum sufficient for payment thereof set apart. There have been no
dividends accrued for 1999 or 1998.
Series A stock and Series B stock is convertible into one share of common stock
at any time at the option of the holder after the date of issuance. Series A
stock was automatically converted into one share of common stock in February
1999, when the Company's offering document became effective.
F-12
<PAGE>
Proformance Research Organization, Inc.
(fka World Associates Inc.)
Notes to Financial Statements
In September 1999 the Company authorized the issuance of 2,000,000 shares of
Series C Preferred Stock to be issued at the discretion of the Board of
Directors for $2.50 per share. The Series C Preferred Stock has no dividends.
The Series C Preferred Stock is convertible into common stock at the rate of one
share of preferred stock for one share of common stock. The Series C Convertible
Preferred Stock automatically converts to common stock pursuant to a
successfully filed registration statement. The conversion rate will be subject
to adjustments in certain events, including stock splits and dividends.
Common and preferred stock issuances
During 1998, the Company issued 96,300 shares of Series A at $5.00 per share for
cash of $481,500.
During 1998, the Company issued 12,500 shares of Common Stock at $4.00 per share
as inducements for loan funds received. The value of the inducements of $50,000
has been charged to operations.
Upon the merger taking place on July 31, 1998 (see Note 3), the Company issued
1,638,061 shares of Common Stock, 533,000 shares of Series A and 463,000 shares
of Series B.
During 1998, the Company issued 41,650 shares of Series A at $1.43 per share for
cash of $59,500.
During 1998, the Company converted $100,000 in debt to 70,000 shares of Series
A.
During 1998 the Company issued 100,213 shares of Common Stock at $1.43 per share
as inducements for loan funds received. The value of the inducements of $143,304
has been charged to operations.
During 1998, the Company issued 2,502 shares of Common Stock at $1.43 per share
for consulting services rendered. The value of the services of $3,578 has been
charged to operations.
During 1999, the Company issued 190,000 shares of Series C at $2.50 per share
for cash of $475,000.
During 1999, the Company converted 857,850 shares of Series A to 857,850 shares
of Common Stock.
During 1999, the Company converted 648,200 shares of Series B to 648,200 shares
of Common Stock.
During 1999 the Company issued 531,214 shares of Common Stock at $1.67 per share
as inducements for loan funds received. The value of the inducements of $887,127
has been charged to operations.
F-13
<PAGE>
Proformance Research Organization, Inc.
(fka World Associates Inc.)
Notes to Financial Statements
During 1999 the Company issued 95,000 shares of Common Stock as an inducement
for purchase of Series C preferred stock. The value of the inducements of
$158,650 has been charged to stockholders' (deficiency).
During 1999 the Company issued 38,000 shares of Common Stock at $2.50 per share
as inducements for distributor funds received. The value of the inducements of
$95,000 has been charged to operations.
During 1999, the Company issued 178,040 shares of Common Stock at $1.67 per
share for consulting services rendered. The value of the services of $297,327
has been charged to operations.
NOTE 8. STOCK WARRANTS
During the year ended December 31, 1999, the Company issued 587,300 common stock
warrants as loan inducements to non-employees, exercisable at $6.00 per share.
The maximum term of the warrant is five years. There was no expense related to
these issuances.
Common stock warrant activity is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
--------- --------
<S> <C> <C>
Outstanding at January 1, 1999 123,000 $6.00
Granted 587,300 $6.00
Exercised - -
Forfeited - -
------- -----
Outstanding at December 31, 1999 710,300 $6.00
======= =====
Options exercisable at December 31, 1999 710,300
=======
Weighted average fair value of options
granted during year $ -
===
</TABLE>
The status of all options outstanding at December 31, 1999 is 710,300 options
with an exercise price of $6.00, a weighted average remaining contractual life
of 4 years for options granted in 1998 and 5 years for options granted in 1999
and a weighted average exercise price of $6.00. All of these options are
exercisable at December 31, 1999 at a weighted average exercise price of $6.00.
F-14
<PAGE>
Proformance Research Organization, Inc.
(fka World Associates Inc.)
Notes to Financial Statements
NOTE 9. DISCONTINUED OPERATIONS
On December 31, 1996, the company adopted a formal plan to dispose of the Team
Family segment of the business, a system of parenting and family development on
videotape and in a booklet. As of December 31, 1998 the disposal has been
completed. The Company recorded a loss from the operation of this segment of
$3,063 in 1998. No gain or loss on the disposition has been recognized.
NOTE 10. EXTRAORDINARY ITEM-GAIN ON EXTINGUISHMENT OF DEBT
In 1999 the Company negotiated with several creditors which resulted in a
settlement of debt. The $64,258 gain, net of income taxes of $16,065 was
recorded as an extraordinary item.
NOTE 11. DESTINATION GOLF SCHOOL AGREEMENTS
The Company has agreements with golf courses located in Arizona, California,
Colorado, Florida, Iowa, Nevada and Wisconsin. In exchange for $65,000 in annual
license fees and other miscellaneous fees varying from course to course, the
Company received supplies, storage and access to golf facilities. The Company's
golf school revenues are generated from schools taught at these locations and
these costs are included in cost of revenues on the income statement.
NOTE 12. INCOME TAXES
The Company accounts for income taxes under Statement of Financial Accounting
Standards No. 109 (FAS 109), "Accounting for Income Taxes", which requires use
of the liability method. FAS 109 provides that deferred tax assets and
liabilities are recorded based on the differences between the tax bases of
assets and liabilities and their carrying amounts for financial reporting
purposes, referred to as temporary differences. Deferred tax assets and
liabilities at the end of each period are determined using the currently enacted
tax rates applied to taxable income in the periods in which the deferred tax
assets and liabilities are expected to be settled or realized.
Income tax provision (benefit) for income taxes differs from the amounts
computed by applying the statutory federal income tax rate of 34% as a result of
the following:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DEC. 31, 1999 DEC. 31, 1998
------------- -------------
<S> <C> <C>
Computed "expected" tax (benefit) ($1,203,355) ($725,315)
Valuation allowance 1,203,355 725,315
------------ ----------
$ - $ -
============ ==========
</TABLE>
F-15
<PAGE>
The net change in valuation allowance for the year ended December 31, 1999 was
$707,856.
The types of temporary differences between the tax basis of assets and
their financial reporting amounts that give rise to a significant portion of the
deferred tax asset are as follows:
<TABLE>
<CAPTION>
TEMPORARY TAX
DIFFERENCE EFFECT
---------- ------
<S> <C> <C>
Net operating loss carryforward: $7,043,180 $1,408,636
========== ==========
</TABLE>
The net operating loss carry forward will expire in the years through 2019.
NOTE 13. GOING CONCERN CONSIDERATION
The financial statements have been prepared in conformity with generally
accepted accounting principles, which contemplates continuation of the company
as a going concern. However, the Company has sustained substantial operating
losses in recent years. In addition, the Company has used substantial amounts of
working capital in its operations. Further, at December 31, 1999, current
liabilities exceeded current assets by $3,206,485 and total liabilities exceed
total assets by $3,571,449.
These circumstances raise substantial doubt about the Company's ability to
continue as a going concern. The ability of the Company to continue operations
as a going concern is dependent upon its success in (1) obtaining additional
capital; (2) paying its obligations timely; and (3) ultimately achieving
profitable operations. Management's plans include raising additional equity
capital and the restructuring or deferral of debt. The financial statements do
not include any adjustments which might result from the outcome of these
uncertainties.
F-16
<PAGE>
Exhibit 27
Financial Data Schedule
19
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET, STATEMENTS OF OPERATIONS, STATEMENTS OF STOCKHOLDERS' DEFICIENCY,
STATEMENTS OF CASH FLOWS, AND THE NOTES THERETO, WHICH MAY BE FOUND ON PAGES F-1
THROUGH F-17 OF THE COMPANY'S FORM 10-KSB FOR THE PERIOD ENDED DECEMBER 31,
1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 24,764
<PP&E> 102,169
<DEPRECIATION> 35,884
<TOTAL-ASSETS> 102,412
<CURRENT-LIABILITIES> 3,231,249
<BONDS> 442,612
0
475,000
<COMMON> 2,996,731
<OTHER-SE> (7,043,180)
<TOTAL-LIABILITY-AND-EQUITY> 102,412
<SALES> 0
<TOTAL-REVENUES> 418,813
<CGS> 0
<TOTAL-COSTS> 364,409
<OTHER-EXPENSES> 3,559,265
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 114,742
<INCOME-PRETAX> (3,619,603)
<INCOME-TAX> (16,065)
<INCOME-CONTINUING> (3,635,668)
<DISCONTINUED> 0
<EXTRAORDINARY> 64,258
<CHANGES> 0
<NET-INCOME> (3,539,280)
<EPS-BASIC> (.81)
<EPS-DILUTED> (.81)
</TABLE>
